Running your own business can be both exciting and nerve-wracking. However one of your least glamorous responsibilities is being an informal representative for the state treasury. Collecting sales tax for the states where you do business isn't something that most entrepreneurs look forward to or prepare for. Luckily, there are specialists who can help you make sure this aspect of your business is also successful.
Avalara has years of experience working on taxation details with small and mid-sized businesses. Last year Avalara Director of Government Affairs Scott Peterson identified five of the most common problems a company faces when trying to start things off right. Use this advice to make sure your sales tax registrations are in order. Then you can focus on the challenges that are more interesting and rewarding.
Pitfall #1: Not registering in the right states - This is an obvious problem, but the solution may not be as clear. To avoid penalties, fines, and audits, you have to know what the right states are. To identify those states, you have to understand nexus - the relationships that require you to collect sales tax. The easiest nexus to identify is where your business offices are located, but several other factors can trigger this obligation. For more details on this key factor, Avalara has provided a number of articles, videos, and whitepapers.
Pitfall #2: Registering in the wrong states - A philosophy of 'better safe than sorry' may not be the best method for sales tax registrations. Each registration costs money and requires you to spend time reporting, even if you haven't collected any sales tax for that state. Clearly those resources would be better invested in more profitable activities.
Pitfall #3: Assumptions about Streamlined Sales Tax (SST) - State governments have realized that it's in their best interest to help businesses collect sales tax. At the start of the new millennium, the SST was organized to simplify registration, reporting, and expenses. Currently there are 24 states fully participating in the SST. If you do business in most of these states, taking advantage of the program can be very helpful. However, if you only have nexus in a few of these states, the benefits for registering this way may not outweigh the costs.
Pitfall #4: Using incorrect NAICS codes - When you register, you specify your company type using codes from the North American Industry Classification System. For example, there are different codes for light manufacturing, wholesale distributors, and professional services companies. The code you select is vital because updates about tax requirements are distributed according to this classification. If you have an incorrect code, you might miss updates that state governments will hold you accountable for.
Pitfall #5: Not de-registering properly - While registering has been streamlined, the process for de-registering when you no longer have nexus is more intricate. Most states have a formal process for notifying the proper departments that you are no longer obligated to collect sales tax. And some states have time constraints on how long you must continue reporting after you cancel your registration.
To assist with these various challenges — plus the complexities of calculating, collecting, filing, and remitting sales tax — Avalara offers powerful and affordable sales tax automation software. Leveraging these tools can free up additional resources for your core business activity.
Even greater time and money savings are possible when you integrate sales tax software with your accounting, ERP, and CRM tools. One of the most powerful combinations is to team up Avalara's AvaTax with aACE 5 business operations software. aACE 5 is built on FileMaker so it can deploy both on-premises and in the cloud to run on Mac and PC devices. It helps manage transactions, inventory, and customer interactions. And it's built to integrate with quality tools like AvaTax in order to maximize your business velocity.
"We have been using aACE for 8+ years and going with their advanced integrated software was our best decision ever." - Claire Wade, Manager, Skip Gambert & Associates